Health Care Law Helps Entrepreneurs Quit Their Day Jobs

The Affordable Care Act could encourage people to start new businesses by solving an age-old problem: job lock.

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Originally published on March 13, 2014 6:37 am

The Affordable Care Act — which many see creating challenges for businesses — could benefit a particular group of business people: entrepreneurs.

Joshua Simonson was reluctant to give up his job at a Portland, Ore., area grocery store, New Seasons Market, which he says had provided excellent health care for him and his family. He had a pre-existing condition that has prevented him from getting insurance in the private market, but one key development helped convince him to quit and start a farm.

"One of the biggest factors was the Affordable Care Act," Simonson says, "that our family would be able to be covered by health care starting the beginning of 2014."

Now, the young entrepreneur runs a 26-acre farm near Sheridan, Ore., where chickens till through the flower beds and goats graze on the lawn. He has 3,000 egg-laying hens, whose eggs he and his partner will sell in the Portland metropolitan area. Soon, they'll add pigs and raise chickens for meat.

It had been hard to leave a job that provided health care, especially since he had trouble getting coverage in the past.

"I was ineligible for any health care. I'd been denied by five different companies because I have back problems," says Simonson, who's broken three vertebrae in his back. "Nobody wanted to cover me because of that."

Economists call what held Simonson back job lock, or entrepreneur lock.

"Entrepreneur lock has proven to be a significant barrier to potential entrepreneurs," says Dane Stangler, vice president of research and policy at the Kauffman Foundation, which promotes entrepreneurship.

"To the extent the Affordable Care Act unlocks that job lock — that entrepreneur lock — one effect is to provide a boost to entrepreneurship overall," Stangler says.

The U.S. system of employer-provided health care deterred people from quitting a job to start their own business, says Susan Gates, one of the authors of a study by the Rand Corporation in 2011.

"People considering leaving a job with good health insurance faced a daunting challenge in purchasing health insurance on the individual market," Gates says.

The study concluded that this particular challenge was reducing the number of entrepreneurs. The study also calculated that making health insurance more accessible and affordable in the individual market could increase self-employment and entrepreneurship by a third.

"There's no question that the health exchanges provide a set of opportunities that didn't previously exist," Gates says.

Stangler believes the ACA could help boost employment by creating somewhere around 25,000 additional new businesses each year. He's not overly concerned that the employer mandate for companies with 50 or more workers might hurt entrepreneurship: Few companies ever get that big, he says.

The ACA could actually help small firms compete for employees, Stangler says, because they could essentially use the exchanges as their health insurance plan. However, Stangler does worry that by limiting the availability of inexpensive catastrophic policies, the ACA could raise costs too high for some entrepreneurs.

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Transcript

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There have been many stories about the challenges that the new health care law poses for businesses, especially those with 50 or more employees. Those businesses will eventually be required to provide health care for their workers or pay a penalty.

But as NPR's John Ydstie reports, there is another group of business people who could benefit from the Affordable Care Act: entrepreneurs.

JOHN YDSTIE, BYLINE: Joshua Simonson has a new 26-acre farm near Sheridan, Oregon.

JOSHUA SIMONSON: Which is in the Williamette Valley of Oregon. And I'm staring at a couple of chickens...

(LAUGHTER)

SIMONSON: ...tilling up our flower beds.

YDSTIE: Simonson has lots of chickens roaming around, searching for worms and bugs.

SIMONSON: We're raising just under 3,000 laying hens for pasteurized eggs that we'll sell into the Portland metropolitan area. And we've got pigs coming in a couple of weeks. And we're planning on doing pasteurized meat birds, as well.

YDSTIE: Simonson and his partner started this farm with the assistance of a group called Friends of Family Farmers. They helped him locate this property. But there was another development that prompted this young entrepreneur to take the leap and start a new business.

SIMONSON: One of the biggest factors was the Affordable Care Act, and that our family would be able to be covered by health care starting the beginning of 2014.

YDSTIE: That convinced Simonson that he could quit his job at a Portland area grocery store, New Seasons Market, which he says provided excellent health care for him and his family. He was reluctant to give that up, especially since he has a pre-existing condition that's prevented him from getting insurance in the private market.

SIMONSON: I was ineligible for any health care. I'd been denied by five different companies because I have back problems. I'd broken some vertebrae in my back and nobody wanted to cover me because of that.

YDSTIE: What Simonson is describing is his escape from what economists call job lock, or entrepreneur lock.

DANE STANGLER: Entrepreneur lock has proven to be a significant barrier to potential entrepreneurs.

YDSTIE: Dane Stangler is vice president of Research and Policy at the Kauffman Foundation, which promotes entrepreneurship.

STANGLER: To the extent the Affordable Care Act unlocks that job lock or that entrepreneur lock, one effect is to provide a boost to entrepreneurship overall.

YDSTIE: That a conclusion is supported by a study done in 2011 by the Rand Corporation. Susan Gates is one of the authors. She says it found that the U.S. system of employer-provided health care deterred people from quitting a job to start their own business.

SUSAN GATES: People considering leaving a job with good health insurance faced a daunting challenge in purchasing health insurance on the individual market.

YDSTIE: The study concluded that challenge was reducing the number of entrepreneurs. It also calculated that making health insurance more accessible and affordable in the individual market could increase self-employment and entrepreneurship by a third.

GATES: And there's no question that the health exchanges provide a set of opportunities that didn't previously exist.

YDSTIE: Dane Stangler believes the ACA could help boost employment by creating somewhere around 2,500 additional new businesses each year. He says he's not overly concerned that the employer mandate for companies with 50 or more workers might hurt entrepreneurship. He says few companies ever get that big.

STANGLER: You know, 95 percent of companies are even below 20 employees.

YDSTIE: And Stangler says the ACA could actually help small firms compete for employees because they could essentially use the exchanges as their health insurance plan. Stangler does worry, however, that by limiting the availability of inexpensive catastrophic policies, the ACA could raise costs too high for some entrepreneurs.